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India's auto industry comes of age
By Indrajit Basu

KOLKATA - Not long ago, India's auto industry was a laughing stock. Its two best-known cars were a 1940s Morris model called the Ambassador and a 1960s Suzuki-derived model called the Maruti 800. But that was then. Today, for instance, the Mumbai-based Dilip Chhabria Design Pvt Ltd (DC Design) is seeking to take on Pininfarina and Bertone, the Italian standard in international car design, by designing and building concept cars, prototypes and limited-production runs. Nor is DC Design alone.

"There can be few more improbable automotive stories than the yarn about the Indian designers creating bespoke concept and prototype cars," said the United Kingdom's auto magazine Autocar in a recent issue. "Yet the hottest ideas in car design are happening right now in the back streets of Mumbai." India is now the ninth country in the world to design a vehicle on its own.

In fact, the Indian auto industry is fast becoming an outsourcing hub for automobile companies worldwide, as zooming automobile exports from the country indicate. Surinder Kapur, the chairman of Sona Koyo Steering, which exports car steering assemblies, says, "Car makers over the world have realized that India can design a car on its own and make it globally acceptable."

Passenger car exports have nearly trebled in four years, from 28,122 units in 1998-99 to 71,653 vehicles in 2002-3. The industry expects this to gather steam further ahead because car exports in the first quarter of 2003-4 leapt by 87 percent over the same period in 2002-3. The two-wheeler segment is booming, too, with exports zooming from 100,004 units last year to 179,000 units in 2002-3. By 2005, the industry expects 400,000 two-wheelers on foreign shores.

The Indian-made sports utility vehicle Scorpio received a singular response in Detroit early this year, not just for its design but also because of its cheaper price tag. Tata Motors, the country's second-largest car maker's small Indica convinced MG Rover of the UK to sell it to the UK market as the City Rover. Others like Ford's mid-sized car model Ikon, Maruti's Altos and Toyota's Indian-made multi-utility vehicle have found ready buyers in a number of American, European and neighboring countries.

And when cars and two wheeler exports are on a roll, can automobile components be far behind? Pushed to export last year following a two-year domestic slowdown, the auto component exported $850 million worth of the nuts and bolts that go into making an automobile by March 2003, up from $578 million in March 2002. "Indian auto component makers now supply to virtually the best and the biggest in the world," says Suresh Krishna of Sundaram Fasteners, a leading auto component exporter, adding that he expects the country to export a targeted $2 billion by 2006.

"Indeed, India is well on its way to become an outsourcing hub for global auto manufacturers and the country stands a good chance against China," says Sundaram Mutual Fund managing director T P Raman, although Joginder Singh, vice president of finance for Ford Motor Company of Canada, thinks that global auto majors can't ignore either China or India.

Already, 15 global car makers - including GM, Ford, DaimlerChrysler, Mercedes-Benz, Audi, Isuzu and Nissan have set up outsourcing offices in the country, with a combined budget of approximately $1.5 billion, industry sources say. Leading component makers like Delphi, Visteon and Caterpillar, too, have found India their best bet. While according to industry estimates the cost of automotive design in Europe ranges as high as $800 per hour, and even higher in the US, costs are as low as $60 per hour in India for equivalent quality.

Whether the next outsourcing wave or simply smart marketing by a local industry, global auto makers are increasingly turning to India for sourcing a wide range of needs that even include designing models meant only for global markets. "To begin with," says Deep Kapuria, of Automobile Components Manufacturers Association of India, "it's triggered by the overall economic slowdown and large-scale bankruptcies in the global auto sector. And as global giants continue losing money, cost pressures are forcing them to opt for sourcing bases in developing countries."

But more importantly, according to industry analysts, the Indian auto industry has finally come of age, having upgraded itself in the past few years to meet global standards. Dilip Chhabria, the head of DC Designs, makes no bones about taking on the world's best. Earlier this year, the Aston Martin AMV8 Vantage starred at the Detroit Auto Show. Chhabria developed the prototype as part of a Ford contract.

Until the mid 1990s, the Indian auto sector consisted of just a handful of local companies. However, after the sector opened to foreign direct investment in 1996, global majors moved in. By 2002, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi had set up their manufacturing bases here.

"These companies first had to focus on issues like quality, vendors and marketing before they could think big," says Arindam Bhattacharya, vice-president, Boston Consulting Group. Thus, in the past four to five years, these companies have not only fine-tuned their operations but forced transformation on the rest of the industry as well.

"Consequently," Bhattacharya adds, "India has not only emerged as a low-cost base but also a source for producing quality products."

The sector also received an unintended boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. It also drew technology infusion and investment. "Not surprising then that India is also set to become a preferred research and development [R&D] center," says Ravi Khanna, president and managing director, Delphi India, adding that its Indian facilities are "an integral part of its worldwide engineering and technical footprint".

Nevertheless, according to managing director Jagdish Khattar of Maruti Udyog Ltd. India's largest car maker and a Suzuki joint venture, India still has a long way to go to become a global force. "Indian companies need to first grow the Indian market to acquire economies of scale," he says. China, for instance, consumes four times India's 700,000 annual car sales. Moreover, if Indian companies hope to corner a big chunk of the global market they need to ramp up global presence considerably, say others.

Still, Joginder Singh of Ford feels that India's auto industry will continue to make its presence felt, primarily because it is one of the few countries the global auto industry cannot ignore. "Two-thirds of a car is built from suppliers. That's a big cost item and companies can cut costs to a large extent in places like India and China," he says. "We can't ignore either China or India, which are projected to be so huge that it would be dangerous to look only at one of them. They are showing the highest growth rate of any market in the world. Any auto maker would be on a fool's errand if it ignores any of them."

Small wonder then that Ravi Khanna of Delphi India is "convinced that with the increasing emphasis on quality, India is fast moving towards becoming a sourcing hub for global automobile makers".

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Sep 3, 2003

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